Facts of the Case

The petitioners — a group of individual civil contractors and one partnership firm, M/s S.A. Infrastructure Engineers and Contractors, of Kalaburagi district — had entered into works contracts with State and government agencies straddling the transition from the KVAT regime to GST from 01.07.2017. Their eight connected writ petitions sought a declaration that GST provisions were inapplicable to works executed prior to 01.07.2017 and that the respondent authorities had no jurisdiction to take coercive GST action against them for such pre-GST works. Counsel for the petitioners submitted that the lis was identical to, and squarely covered by, a decision of a Coordinate Bench of the same High Court in W.P. No. 9721 of 2019 and connected matters, disposed of on 11.04.2023, and sought application of that order's directions.

Issues Involved

  1. How should GST/KVAT liability be apportioned for works contracts spanning the pre-GST (pre-01.07.2017) and post-GST periods.
  2. Whether the detailed tax-reconciliation and reimbursement framework laid down in the Coordinate Bench's order in W.P. No. 9721 of 2019 applied equally to this batch of connected petitions.

Petitioner's Arguments

  • The petitioners submitted that the lis and reliefs sought were identical to those already decided in W.P. No. 9721 of 2019 and connected matters, and that the same directions (Paragraph 20 of that order) could be applied here as well.

Respondent's Arguments

  • The respondents' counsel raised no particular opposition to applying the earlier coordinate bench order to the present batch of petitions.

Court Order / Findings

  • The Court held that Paragraph 20 of its order dated 11.04.2023 in W.P. No. 9721 of 2019 and connected matters squarely applied and disposed of the present writ petitions in the same terms.
  • That framework directs the concerned government employer/department to: calculate works executed pre-GST and assess payments received for such works under the KVAT regime; calculate balance works completed or to be completed after 01.07.2017; derive material rates and deduct KVAT/service tax while adding applicable GST; set off input credit on materials against output GST for those assessed under regular VAT; compute the resulting 'tax difference' on the balance post-GST works separately; and decide whether the underlying agreement needs revision.
  • Where the revised GST-inclusive value of balance work (or payments made post-GST for pre-GST work) exceeds the original agreement value, the employer must pay/reimburse the contractor the differential tax amount.
  • Petitioners were directed to submit comprehensive representations to their respective employers within four weeks, to be decided within eight weeks; petitioners who had not filed GST returns for the relevant period were permitted to file them without interest, penalty or limitation objection; and the GST authorities were directed not to take precipitative action against the petitioners for six months.
  • Liberty was reserved to petitioners to challenge any subsequent order/decision of the respondents.

Important Clarification

  • For a works contract straddling the pre-GST/post-GST transition, tax liability is to be split: pre-01.07.2017 work is assessed under the erstwhile KVAT regime, while the balance work is assessed under GST with input tax credit on materials set off against output GST.
  • Where the differential tax arising from this recalculation increases the contract's tax-inclusive value, it is the employer/procuring department, not the contractor, that must bear and reimburse the additional GST component.

Sections Involved

  • Central Goods and Services Tax Act, 2017 – applicable to works executed on or after 01.07.2017.
  • Karnataka Value Added Tax Act, 2003 (KVAT) – governs works executed before the GST transition date, under which pre-GST payments continue to be assessed.

Decision – In Favour of

The disposal is in favour of the Assessee/contractors in substance — the petitions were allowed by applying the coordinate bench's reimbursement and tax-differential framework, protecting the contractors from double taxation and from coercive GST action during the reconciliation period.

Case Details

Court: High Court of Karnataka, Kalaburagi Bench
Case No.: Writ Petition No. 200947 of 2019 and Connected Matters (WP Nos. 201473, 201696, 204847 of 2019; 223755, 226661, 226871 of 2020; 200669 of 2021)
Neutral Citation: 2023:KHC-K:4634
Coram: Justice Suraj Govindaraj
Date of Order: 27.06.2023

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